ITALY. British American Tobacco today agreed to acquire ETI (Ente Tabacchi Italiani) Italy’s state tobacco company, for €2.32 billion (US$2.55 billion).
The figure – higher than analysts had expected – is equivalent to 15.5 times ETI 2002 gross operating profits and 13.7 times gross operating profits for the 12 months to March 2003 (slightly higher than the multiple Imperial Tobacco paid to acquire Reemtsma). The bid saw off two rival offers from Franco-Spanish tobacco group Altadis and Imprenditori Associati, an Italian consortium backed by the Benetton family.
The important acquisition will elevate British American Tobacco to the number two position in Italy (the second largest tobacco market in the EU). BAT’s market share in Italy will reach 33% compared with 55% for Philip Morris.
BAT said the scale of the enlarged operations will bring significant opportunities to compete and grow ETI’s local brands and British American Tobacco’s international brands.
BAT chairman Martin Broughton commented: “This strategically important investment will transform our presence in one of Europe’s largest tobacco markets.
“The price we are paying is higher than the market has been expecting but it reflects the detailed financial information we have received, the discussions we have had with ETI’s management and our view of the long term prospects for the business and synergies that can be achieved. We got a good deal at a fair price.”
He added: “ETI’s management has done an excellent job in revitalising the company. We look forward to a long and very successful relationship with ETI’s employees, its customers, tobacco growers, other suppliers and the Italian Government.”
ETI sold more than 26 billion cigarettes in 2002 – about 26% of the market – including well-known brands MS and Sax. It also has almost 40% of the country’s cigar sales.
ETI, through its subsidiary Etinera, is also responsible for the distribution of most tobacco companies’ products to Italy’s 58,000 tobacconist shops. BAT said it is committed to maintaining the neutrality of Etinera from the manufacturing and marketing business. However, its valuation of ETI does not rely on other manufacturers continuing to use Etinera.
In the year to 30 September 2003, ETI is expected to report operating profit (EBITDA) of €190 million (US$209 million) on revenues of €669 million (US$736 million) up +31% from 2002.
BAT said it believes there will be further scope for cost-cutting and reducing the combined overhead base of its Italian operations.
BAT will finalise the ETI in conjunction with the FB Group, headed by Franco Bernabè, and Axiter, a company owned by Confcommercio, Italy’s largest trade organisation. The company acquiring ETI is the Italian-incorporated Britannica Italiana Tabacchi (98% owned by BAT Italia and 2% by BAT International Holdings).
BAT Italia ceo Francesco Valli said the price paid to buy ETI is in line with the levels paid for other privatised tobacco groups. In an interview with the Italian newspaper Il Sole 24 Ore, Valli added that for BAT the Italian market is “absolutely strategic”, being the ninth largest in the world and the second biggest in Western Europe.
BAT does not intend to float ETI, Valli said, adding that the group will respect its commitment to maintain ETI’s production and distribution businesses together for three years.
Completion of the transaction is subject to approval by the European Commission.
